Oil Drillers Gain Billions from 'Immoral' Tax Break

The two largest offshore drilling companies in the world, Transocation and Noble Corporation, are in reality headquartered in the Houston area but moved their legal domiciles first to the Cayman Islands and then to Switzerland to avoid U.S. tax. Calculations shown below indicate that those maneuvers have reduced their tax bills by more than $2 billion.

Transocean owned and operated the floating, dynamically positioned rig that exploded on April 20, leading to a loss of 11 lives and spilling hundreds of thousands of gallons of crude oil into the Gulf of Mexico.

The transaction in which a corporation changes its legal domicile from the United States to a foreign jurisdiction is referred to as an inversion or a corporate expatriation. These tax-motivated restructurings occur with little or no real change in day-to-day business operations. Top executives, key personnel, and all significant business operations in the United States before the transaction remain in the United States.

In general, a U.S. multinational is liable for U.S. tax on income from its worldwide operations. By inverting, a multinational is no longer subject to U.S. tax on income from its foreign operations. In addition, the transactions often are accompanied by planning techniques that strip income out of the United States.  Yet another tax benefit from inverting is that foreign stockholders (as well as U.S. tax evaders posing as foreign shareholders) are no longer subject to U.S. withholding tax on dividends paid from a foreign corporation.

In addition to the main article, author Martin A. Sullivan has a PDF a summary of the tax savings for some of the largest oil and gas related inversions here.